Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Hendricks, James Vs US Bank June 6, 2011
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Question:  Did this hearing conclude that the foreclosure stands?  I re-read it several times and I don't understand the ruling.
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Per the opinion, the February 11, 2010 sale per the MERS advertisement was void ab initio.

But, it appears that First Franklin filed a counterclaim for foreclosure which was granted which was separate and after the MERS foreclosure sale.

Will there be an appeal to First Franklin standing?

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William A. Roper, Jr.
Nick Timoraos has a very nice write-up on the Hendricks decision in this afternoon's online edition of the Wall Street Journal:


WSJ: "In Michigan Case, Securities Trip Up Foreclosure", by Nick Timoraos (June 10, 2011)



A couple of notes are in order.  First, it is my understanding that the Court did NOT in fact enter a judgment of foreclosure in favor of First Franklin.


Rather, the Court seems to have indicated that it would be First Franklin that would be entitled to enforce the Hendricks promissory note.




Here, there is an inteeresting distinction that perhaps Nick will clear up in an update.


Merrill Lynch (and thus BOA) acquired National City Home Loan Services, Inc., later Home Loan Services, Inc.


PNC Bank acquired National City Bank.

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Actually, the court did grant First Franklin's motion for a judgment of foreclosure. ..  

As I read the case, the original lender was First Franklin, a division of National City Bank.  First Franklin endorsed the note to First Franklin Financial Corp.  First Franklin Financial endorsed the note in blank.  The court states that the note was transferred from First Franklin to First Franklin Financial but the assignment of mortgage from First Franklin to First Franklin Financial was never recorded.  The only assignment recorded was from MERS to U.S. Bank and the court opined that assignment transferred nothing.  Therefore, the court opined that Section 2.01 of the PSA was not complied with and First Franklin is the only party entitled to foreclose.  
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William A. Roper, Jr.


Your reading of the decision is not unlike my own.  However, neither of us have the benefit of either the pleadings or the oral argument (including statements the judge made from the bench).

In discussing this case earlier in the day with Nick Timoraos, I understood that he had heard from Hendricks' counsel that the Judge had NOT entered an order of foreclosure in favor of First Franklin.


I would make a couple of additional observations consistent with this view.  First, in most jurisdictions, a court cannot enter a judgment in favor of a non-party or for relief not expressly sought within the pleadings.  It is UNCLEAR TO ME whether First Franklin was actually a party to the case.  In one place, the Judge mentions defendant "First Franklin", but I think he may have been referring to the trust rather than the originator.

It is certainly possible that Hendricks made the blunder of expressly naming First Franklin as a defendant, which would have then brought them in as a party and entitled First Franklin to file counterclaims and to seek relief.

(This seems somewhat UNLIKELY given that First Franklin was a trade name for National City Bank's mortgage origination operation and National City no longer exists.)

And given the report that Hendrick's counsel seems to think that no such judgment was rendered, I think that Nick has this aspect of the story correct and that the decision is just inarticulately worded.  (If I was Hendricks, I would seek an alteration of that wording.)


So does "First Franklin, a division of National City", own the loan; is it owned by "First Franklin Financial Corp." or is it owned by "First Franklin Mortgage Loan Trust, Mortgage Loan Asset-Backed Certificates Series 2006-FF18"?

Merrill bought the servicer.  PNC bought the bank.  BAC Home Loan Servicing now purports to be servicing the loan.
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So what happens now?

If First Franklin, or its successor, comes forward stating ownership in the note... and starts the foreclosure process (which in Mi the original mortgagee can do via advertisement) how will they reconcile this position with the paperwork already filed with the court in this case? Or does that even matter?
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There is some thoughtful implications to this ruling that all "borrowers" must understand when they deal with debt holders.

Friday, June 10, 2011

By Nick Timiraos WSJ

Michigan Court Relies on New York Trust Theory, Rules Loan Never Made it to Trust

A June 6 trial court decision in Michigan, Hendricks v. US Bank, has not gotten the attention it warrants because to the extent it has been noticed, it has been depicted as invalidating an effort to effect a note (the borrower IOU) transfer via MERS. While that was one of the grounds for a ruling favorable to the borrower, the court also considered and gave a thumbs’ up to what we call the New York trust theory. That has far more significance, as readers will see shortly (hat tip to Foreclosure Fraud for this sighting).

This legal argument, which so far has been tested in a very few cases (primarily in Alabama, since it was perfected by Alabama attorney Nick Wooten) was the basis of a favorable ruling in Alabama trial court. The reason it bears watching is that if the New York trust theory continues to be validated in court, it has devastating consequences for most post 2004 vintage residential mortgage backed securities. it has been the subject of a long-running argument among legal experts, with the Congressional Oversight Panel, Adam Levitin, as well as consumer lawyers like respected bankruptcy attorney Max Gardner on one side, and securitization industry incumbents like the American Securitization Forum and SNR Denton.

The bare bones outline of the argument is that the trusts, the legal vehicle that holds the mortgage loan, in virtually all securitizations, elected New York law as the governing law for the trust. New York law is well established and very rigid. A trust can act ONLY as stipulated; any deviation is a “void act” and has no legal force.

But the problem is that the notes appeared not to have gotten to the trust. As we wrote earlier:

…. there is substantial evidence that in many cases, the notes were not conveyed to the trust as stipulated. As we have discussed, the pooling and servicing agreement, which governs who does what when in a mortgage securitization, requires the note (the borrower IOU) to be endorsed (just like a check, signed by one party over to the next), showing the full chain of title. The minimum conveyance chain in recent vintage transactions is A (originator) => B (sponsor) => C (depositor) => D (trust).

The proper conveyance of the note is crucial, since the mortgage, which is the lien, is a mere accessory to the note and can be enforced only by the proper note holder (the legalese is “real party of interest”). The investors in the mortgage securitization relied upon certifications by the trustee for the trust at and post closing that the trust did indeed have the assets that the investors were told it possessed.

The pooling and servicing agreement also provided that the transfers had to take place by a particular cutoff date, which was typically no later than 90 days after the closing of the deal. That means notes cannot be transferred in at a later date.

The ruling is very clear that the note never made it to the trust:

Note that the judge rules that someone can foreclose, but it’s not the trust, it’s the original lender. But that is unacceptable to the mortgage industrial complex. They cannot afford to admit they defrauded investors, which is what a foreclosure in the name of the original lender amounts to.

So when people complain about borrowers getting free houses, they act as if it’s the borrower’s fault. That’s the wrong place to assign blame. No one is saying the borrower does not owe somebody money. And the borrowers aren’t seeking a free house; they usually came to this juncture because they thought their records had overcharges in them or they thought they were a good candidate for a mod but could not get the servicer to consider their case. It’s the originators and packagers who put themselves in the situation of not being able to enforce the debt, not the borrower.

The apparent widespread abandonment of the practice of crossing the ts and dotting the is potentially devastating. If the failure to convey notes properly is as widespread as we have been told by various observers (and Abigail Field’s sample confirms), the mortgage industry has a monstrous problem on its hands. As the Michigan ruling suggests, at a minimum, notes not transferred properly are actually owned by someone earlier in the securitization chain. But no one wants to admit that; it means the investors were lied to and hold paper that does not have clear legal rights to foreclose and that originatorrs, servicers and trustees have committed massive securities fraud. And in a worse case scenario, if no notes were transferred to the trust by closing, there is a contract formation failure.

This is the sword of Damocles hanging over the bond markets. The incumbents, bizarrely, seem intent on pretending it does not exist rather than trying to do something to alleviate the damage.

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